Tech Stocks: What’s Hitting Semis?

Semiconductor stocks have been weak of late after a recent Morgan Stanley downgrade and some negative data-points. While the stock market is close to all-time highs the semiconductor chart (SMH) is struggling.

We pointed out semiconductor technicals being week in early July and they have continued to under-perform.

Weak Action Last Week

While the rest of the stock market was going up on expected US-China trade negotiations, semiconductor stocks continued to get hit. Semiconductor stocks would be among the biggest beneficiaries to a trade truce. Seeing them fall is a negative action sign and needs to be noted.

Samsung Push-Outs, NAND and DRAM

Samsung pushing out equipment orders in NAND and DRAM have caused semi-equipment companies to plan for down sequential revenues in Q3.Investors remember past cycles where that has spelled disaster.

We don’t think this is disaster this time. But with NAND pricing coming down we’ve been cautious on semi-equipment companies for some time.

Samsung, though likely pushed out DRAM orders not because of falling prices but because of the difficulty in transitioning to the next technology node. That can ultimately bode well for DRAM suppliers as industry supply growth could fall below expectations supporting pricing.

DRAM spot pricing has also reported to come down. That can weigh on stocks until news reports otherwise. Companies like Micron (Nasdaq:MU) have been outpacing the spot market pricing but they don’t report earnings for another month to offset claims of spot price erosion.

As for NAND, Apple iPhone units being below expectations this year may have helped weigh on NAND prices. If Apple (Nasdaq:AAPL) can nail this next iPhone launch that can add some support to NAND prices.

Typical Seasonal Tech Stock Weakness

Seasonally this period of time has been difficult for tech stocks pretty much through September. Reports coming now report on the summer lull. The results of the Q3 ramp ahead of holiday don’t get reported until October which typically can benefit tech stocks.

Conclusion

The big hit is in semiconductors but there are many individual stories and non-semis that can look through the semi-equipment concerns. We’d also expect select semiconductor stocks to catch some strength later this year. But Morgan Stanley’s call came in a news air-pocket for ultimate impact. We don’t get any potential counter news flow until the broker conference circuit kicks off in September or the next round of earnings reports.